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Hill Company 48000

Hill Company uses budgets in controlling costs. The August 2014 budget report
for the company’s Assembling Department is as follows.

Hill
Company

Budget Report

Assembling
Department

For the Month Ended
August 31, 2014

Manufacturing

Budget

Actual

Difference

Variable
costs

Direct
materials

48,000

47,000

1,000

F

Direct labor

54,000

51,200

2,800

F

Indirect
materials

24,000

24,200

200

U

Indirect
labor

18,000

17,500

500

F

Utilities

15,000

14,900

100

F

Maintenance

6,000

6,200

200

U

Total variable

165,000

161,000

4,000

F

Fixed costs

Rent

12,000

12,000

-

Supervision

17,000

17,000

-

Depreciation

6,000

6,000

-

Total fixed

35,000

35,000

-

Total costs

200,000

196,000

4,000

The monthly budget amounts in the report were based on an expected production of 60,000
units per month or 720,000 units per year. The Assembling Department manager is pleased
with the report and expects a raise, or at least praise for a job well done. The company president,
however, is unhappy with the results for August because only 58,000 units were produced.

Instructions

(a) State the total monthly budgeted cost formula.

(b) Prepare a budget report for August using flexible budget data. Why does this report

provide a better basis for evaluating performance than the report based on static budget

data?

(c) In September, 64,000 units were produced. Prepare the budget report using flexible

budget data, assuming (1) each variable cost was 10% higher than its actual cost in